Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Ill. Nat'l Bk. v. Gulf States Energy Corp.







APPEAL from the Circuit Court of Winnebago County; the Hon. BRADNER C. RIGGS, Judge, presiding.


Rehearing denied January 27, 1982.

Defendants, Gulf States Energy Corporation and Royal Russell, appeal the rescission of certain transactions concerning fractional interests in oil and gas leases. The Winnebago County Circuit Court held these transactions to be sales of securities within the meaning of the Illinois Securities Act (Ill. Rev. Stat. 1973, ch. 121 1/2, par. 137.1 et seq.) and ordered rescission of the sales for defendants' failure to register the securities with the Secretary of State's Office, as required by the Act (Ill. Rev. Stat. 1973, ch. 121 1/2, par. 137.5).

Plaintiffs had filed their complaints separately, but because the cases had identical issues and nearly identical facts, they were consolidated for trial and for this appeal.

Defendants contend that they are not subject to the personal jurisdiction of the Illinois Courts>; that the agreements made by the parties did not constitute the purchases of securities; that the Illinois Securities Act does not apply to a contract made in Texas; and, finally, that plaintiffs failed to comply with notice and tender requirements of the Illinois Securities Act and thus cannot recover under that Act.

Defendant Gulf States Energy Corporation (Gulf States) is a Texas corporation which owned oil and gas leases in Texas. Defendant Royal Russell is Gulf States' president. Gulf States sells fractional interests in its leases to drill and develop producing wells.

Gulf States initiated the negotiations which led to the contracts in issue. Sometime in 1974 or 1975 John McGowan, a representative of Gulf States, telephoned plaintiff Richard Kallenbach and Robert Sullivan. McGowan proposed that they invest in nonproducing, working interests in wells leased by Gulf States. Each of these individuals received a prospectus through the mail from Gulf States. McGowan or another Gulf States' representative telephoned Kallenbach and Sullivan a number of times. Kallenbach entered into a number of transactions with Gulf States in spring of 1975. He purchased a 2% working interest in three oil or gas wells, Celotex Prospect Gail #5, Gail #6 and Gail #7, in March and April 1975. He later made payments on Gail #5 re-entry, Gail #6 re-entry and Gail #8 re-entry. His total investment was $17,750. Illinois National Bank and Trust Company, as trustee for a trust established by Robert Sullivan for his benefit, and as trustee for a trust established by Dorothy Sullivan, Robert's wife, for her benefit, also purchased working interests in Gulf States wells in separate transactions spread out over a number of months. As trustee for Robert Sullivan's trust it entered into transactions concerning Gail #4, Gail #6, Gail #7, Gail #8 and Gail #5. In addition, additional drilling costs were paid on Gail #7. As trustee of Dorothy Sullivan's trust the bank entered into transactions concerning Gail #4, Gail #6, Gail #7, and Gail #6 re-entry. Additional drilling costs were also paid on Gail #7 on behalf of this trust. The bank expended a total of $32,665 on behalf of the trusts.

The agreements are nearly identical, differing only in the date, location of the property, amount due, and the depth to which Gulf States agreed to drill. For the agreements regarding the re-entries Gulf States was to drill to 4800 feet, while in the other agreements the drilling depths varied from 3200 feet to 4800 feet. A representative agreement reads in part as follows:


THIS AGREEMENT made and entered into by and between GULF STATES ENERGY CORPORATION, a Texas corporation (Hereinafter called `Gulf States'), and Illinois National Bank & Trust Co. of Rockford, Trust No. 5424


WHEREAS, Gulf States is the owner of a certain mineral lease described as follows:

WHEREAS, said lease is subject to landowners and overriding royalties aggregating 21%, and as a consequence, the full 100% working interest carries a 79% net revenue interest in production; and

WHEREAS, Gulf States is engaged in the business of exploring for and producing oil and gas and operating oil and gas properties, and proposes to assign a portion of its working interest in the Lease to Investor and drill, or cause to be drilled an oil or gas well thereon upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, it is agreed by and between the parties as follows:

1. In consideration of the payment of $2,710.00, the receipt of which is hereby acknowledged, Gulf States hereby assigns to Investor an undivided 2% working interest in the Lease. Upon completion of the oil or gas well referred to in Paragraph 2 below, Gulf States shall execute and deliver an assignment to Investor in recordable form, which assignment shall contain covenants of special warranty, be subject to this Agreement and to the terms of the Lease and all instruments by, through and under which Gulf States holds said Lease, and reflect that Investor's interest shall bear 21% of the royalties and overriding royalties burdening said Lease as stated herein.

2. Investor does hereby nominate, constitute and appoint Gulf States with full power and authority to drill, or cause to be drilled, an oil or gas well on the Lease, (herein called the `Well'), to a maximum depth of 3,200 feet or to the Flippen Limestone, whichever comes first. Gulf States hereby accepts the $2,710.00 paid by Investor, which, together with amounts paid to Gulf States by other Investors, Gulf States accepts as payment for the drilling of the Well and hereby covenants that the drilling of the Well will begin on or before March 31, 1975 subject to events beyond the control of the operator, that such drilling will be done in a good, workmanlike, and continuous manner to the depth of 3200 feet or the Flippen Limestone, whichever comes first. If such drilling discovers commercial production, the Well will be fully equipped and necessary storage tanks placed thereon at the expense of Gulf States. As provided in the Operating Agreement referred to in Paragraph 3 below, Investor shall bear and pay his proportionate share of the costs and expenses incurred in connection with operating, producing and reworking the Well.

3. The parties hereto specifically agree to make and enter into an Operating Agreement for the development and operating of the Lease and Well in substantially the form of the Operating Agreement attached hereto as Exhibit A. Said Operating Agreement shall provide generally that Investor gives Gulf States the following powers:

(a) To market the oil or gas that may be produced.

(b) To collect and receive from any purchaser of such oil or gas all monies that may be due the Investor from the proceeds of the sale thereof.

(c) To give all proper receipts for monies and to pay out of the proceeds from the sale of any oil or gas produced from the Lease any expenses reasonably incurred in the production and sale of such oil or gas.

(d) To pay all taxes against such oil or gas lease from the proceeds thereof.

(e) To Execute for the Investor an oil or gas purchase contract.

4. Anything to the contrary contained in this Agreement, or the proposed Operating Agreement, notwithstanding, the Investor hereby reserves his ownership in the oil or gas in place under the Lease, together with his right to contract for the sale of his own interest in said oil or gas, except that Gulf States may negotiate limited sales contracts for the sale of production for a period not longer than one year, and provided that such sales contracts may be terminated by the Investor on not more than 30 days notice.

6. It is not the purpose or intention of this Agreement to create a partnership or mining partnership and neither this Agreement nor the operations hereunder shall be construed as creating such relationship.

10. This Agreement is made and entered into in Dallas, Texas, and shall be governed by the laws of the State of Texas.

The parties have executed this Agreement this _____________ day of __________________, 1975.


By: ss President

Illinois National Bank & Trust Co. of Rockford Trust No. 5424

ss Investor's Signature * * *."

The agreements were prepared by Gulf States in Texas and mailed to plaintiffs in Illinois. Plaintiffs signed the agreements and returned them to Gulf States in Texas with a check for the appropriate amount for each agreement. Upon receipt of the checks and documents signed by plaintiffs, Royal Russell signed the agreements on behalf of Gulf States. It appears that Gulf States did in fact drill ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.